President's Report

September 23, 2005

At the Bank

Exerpt from Alfred A. DelliBovi's speech to the New Jersey League of Community Bankers Senior Management Conference in Galloway, NJ.

...It is a pleasure to be here with all of you today. The warmth and familiarity of the Seaview Marriot creates an ideal environment to make new community lending partnerships and catch up with old friends -- partnerships and friendships that have helped make New Jersey communities and economy strong and vital.

I am delighted to participate at this Senior Management Conference where the three Rs of banking -- Risk, Regulation, and Remedy -- are front and center. The reality is that successfully managing these three Rs is the very essence of being a good banker. The Home Loan Bank is pleased to support you with our bank funding and liquidity management products. We exist for one reason: to help you continue to be good bankers by providing a needed source of wholesale funding to help you manage liquidity, loan demand, and interest rate risk. The folks at the Home Loan Bank work every day to help you remain independent and continue as an economic engine in each community you serve.

The benefit of this partnership was recently cited by United States Treasury Secretary John Snow who said in San Antonio to a gathering of bankers that you "... have been part of a phenomenal economic recovery and are helping to finance terrific economic growth. You are on the front lines, working closely with your customers to buy a new house or perhaps grow a small business. That's important work that has helped our economy prosper and has therefore made a real difference in people's lives. The people here in this room should be very proud… because you are very much a part of our country's economic recovery and strength. Whether it's home equity lines of credit or small-business start-up loans, you are providing the capital that enables terrific job-creating economic growth."

I believe Secretary Snow got it exactly right. And again, to emphasize the point, one of the key reasons why community banks are able to fulfill this role in our economy is because of the support and services you tap from the Home Loan Bank.

And the resources we provide are substantial. In New Jersey, the Home Loan Bank supports 118 local member lenders who have in total $13.6 billion in outstanding advances. These are impressive numbers, but they don’t tell the whole story. What is missed is the exceptionally qualified, committed folks who make the financial services industry so vibrant in our area.

The Home Loan Bank is fortunate to have three leading community bankers serving on our Board of Directors who are here today. I would like to recognize David Lindstrom, President and Chief Executive Officer of Franklin Savings Bank; Dave serves as the Vice Chair of the Board and Chair of the Board’s Executive Committee. I would also like to recognize Kathy Liseno, President and Chief Executive Officer of Metuchen Savings Bank and Chair of the Board’s Housing Committee, and Kevin Lynch, President and Chief Executive Officer of Oritani Savings Bank and a member of the Board’s Housing Committee. And we thank you also for Ron Hermance, Chairman, President and Chief Executive Officer of Hudson City Savings Bank.

I would be remiss if I did not likewise recognize Mike Horn, a former Director of the Bank. Mike is a Partner with the law firm McCarter & English, and former Commissioner of Banking and Treasurer of this state.

Now there is another key player in our industry here today that I want to recognize. He has served as the voice of reason in support of community bankers at the local, state, and federal levels of government for over two and a half decades. His common sense approach to resolving issues is legendary. And I am sure everyone in this room knows who I am describing: Sam Damiano. As we all know, this is Sam’s last year serving as the president of the New Jersey League.

Sam, you know what community is about -- you know it is about the virtues of compassion combined with hard work. And it is these blended virtues which stand out during your tenure as the leader of the New Jersey League. And even during these closing months of your leadership you have not slowed down. You have recently thrown your energies behind the New Jersey Community Bankers Education Foundation. This new 501(c)(3) organization was created to provide scholarships for children of members of the United States Armed Forces who have recently lost their lives in Afghanistan or Iraq. I am proud to present to you this $5,000 check from the Home Loan Bank for the New Jersey Community Bankers Education Fund.

Sam, you leave a strong legacy for us to build on. I congratulate you for a job well done. And Sam, I can't help remembering the convention two years ago in which we were the source of attention from the national media. I must say I am delighted that we are not the source of such attention today. It is yet another indicator of the strength of the Home Loan Bank. But let me stop here to say that I have to be much more careful in my remarks than in the past. This is because, as you know, the Federal Home Loan Bank of New York became a SEC registrant on August 29, 2005. We have an entire new set of rules and regulations that we must be mindful of and conform to. And we will.

With our registration, the Home Loan Bank has now cleared the decks for the capital stock exchange as required by the Gramm-Leach-Bliley Act. This exchange will move the Bank more towards a risk-based capital structure. We anticipate that the exchange will occur in early December. We of course will be mailing to each member an information package on this pending exchange. In the mean time, should you have any questions, please let me or any Home Loan Bank employee know.

Now there has been one immediate change as a result of the SEC registration. Our financials are accessible 24 hours a day, seven days a week, on the EDGAR portion of the SEC’s web site. Should you access our Form 10, you will note that we are keeping to the fundamentals. We continue to be an “advances” Home Loan Bank. As of June 30, 2005, advances constituted 74% or $64.6 billion of the Home Loan Bank's $87.4 billion total assets. And with these assets of $87 billion, we produced solid results.

For the second quarter of 2005 our Board of Directors approved a dividend rate of 5.0% (annualized). The dollar amount of the second quarter dividend was approximately $46 million. This dividend is reflective of the Bank’s low-risk profile and conservative investment strategy. Retained earnings after the dividend payment were approximately $220 million. And, as announced in July, the Bank intends to rebuild earnings to approximately $245 million, the December 2002 level, by next year.

Let me drill down for a few moments into the SEC registration issue. This is matter that has occupied a good deal of my attention for these past three years.

The Home Loan Bank’s registration by August 29, 2005, was required by federal regulation issued by our primary regulator, the Federal Housing Finance Board, back in June of 2004. As reported in the national press, two of the 12 Home Loan Banks met this deadline. They are the New York Bank and the San Francisco Bank. These two Banks are similar. Both Banks focus on the advances business and both run conservative operations.

A number of questions have recently been raised. Some have asked whether other Home Loan Banks did not meet the deadline because of individual accounting issues. Some have suggested that the shareholders in the System step back and ask whether it is now appropriate for increased operational uniformity within the Bank System. Some have pointed specifically to the accounting area and have asked if it makes sense to have 12 separate back offices with varied accounting treatments and applications.

Some stockholders have called for more than just considering consolidation of accounting, computer, and other appropriate activities but have called for consideration of consolidation of the 12 Home Loan Banks. They have pointed out that the entire industry is consolidating and so how is it that the Home Loan Bank System is immune to this trend? That is a very good question. Of course, the final decision on these matters will be made by the individual Home Loan Bank Boards and members.

Let me caution you that mentioning the word “consolidation” in the same sentence as “Home Loan Bank” is very controversial among some of the Home Loan Banks and other members. As you might recall, earlier this year -- on April 13 to be precise -- George Engelke, Chairman of our Bank, testifying before the Senate Banking Committee, indicated his personal support for consolidation. This is not an issue on which our Board has taken a stand, but as George pointed out, consolidation would "very effectively eliminate the current somewhat illogical structure” of the Banks. Those were thought provoking words then and they are thought provoking words now. I won’t try to predict the result, but I will predict that this is an issue you will be hearing more about.

Now the hearing at which Mr. Engelke testified was part of the greater legislative effort by the Senate Banking Committee and the House Financial Services Committee to consider GSE regulatory restructuring legislation. Both Committees have adopted legislation which would establish a new independent regulator for Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. For the Federal Home Loan Banks, both the House and Senate pieces of legislation appear to treat us fairly.

However, as reported in the media and trade press, this legislative initiative is currently stalled. The Democrats support an affordable housing program similar to the Federal Home Loan Banks’ program to be set up at Fannie Mae and Freddie Mac and oppose the imposition of mortgage portfolio caps. Conversely, several influential Republicans oppose the creation of an affordable housing program and call for the imposition of portfolio caps. When exactly this stalemate will be resolved is anyone's guess. But I hope it is soon. Passage of GSE regulatory reform legislation would enable Fannie Mae and Freddie Mac to get back to fully focusing on their primary business of providing orderly secondary mortgage markets and allow the Home Loan Bank System to concentrate on our primary mission of providing low-cost liquidity to our portfolio lending community bankers. If enacted, the new GSE regulatory restructuring legislation will hopefully bring enhanced serenity and calm to the markets and in turn result in lower cost mortgages for the American homebuyer. And I might add, when the consequences and ramifications of the devastation caused by Hurricane Katrina are being felt across the Nation, now is the time to assure calm, productive, and stable financial markets.

Of course this brings another topic that might be of interest: what is the effect of Katrina on the Home Loan Bank of New York? For our Bank, the impact appears to be de minimis. There is no consequence worth reporting on the Bank’s collateral portfolio, investment portfolio, nor mono-line insurers. This is a tragedy of biblical proportions, but it is one that appears to have no material impact on the Home Loan Bank of New York.

At the Home Loan Bank, I can assure you that your team will do all in our power to operate in a stable and productive manner. We will stick to the fundamentals of managing risks, complying with regulations, and, when necessary, applying the correct remedy. By sticking to the three Rs, the Home Loan Bank will remain a helpful partner. In turn, this partnership will enable you to ensure that Main Street remains open and competitive.

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Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995This report may contain forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements are based upon our current expectations and speak only as of the date hereof. These statements may use forward-looking terms, such as “projected,” “expects,” “may,” or their negatives or other variations of these terms. The Bank cautions that, by their nature, forward-looking statements involve risk or uncertainty and that actual results could differ materially from those expressed or implied in these forward-looking statements or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. These forward-looking statements involve risks and uncertainties including, but not limited to, regulatory and accounting rule adjustments or requirements, changes in interest rates, changes in projected business volumes, changes in prepayment speeds on mortgage assets, the cost of our funding, changes in our membership profile, the withdrawal of one or more large members, competitive pressures, shifts in demand for our products, and general economic conditions. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

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